OTP’s second-quarter adjusted net income rose 14 percent
from a year earlier to 52.3 billion forint ($232 million),
beating analyst expectations as tax payments dropped and revenue
rose. Adjusted net profit forecast was for 43.1 billion in a
Bloomberg poll of 5 analysts. Net income after the payment of an
additional one-time levy on banks this year was 40.6 billion
forint in the period versus 41.1 billion forint a year earlier,
the bank said in a statement on Budapest bourse website today.

“All we can say for certain is that OTP’s lending
performance will be better in the second half of the year,
however we can’t say for sure if lending will grow this year,”
Bencsik told reporters at a press conference in Budapest today.
The bank expects the profitability of its Russian unit to be
weaker than in previous years as lending will slow and bad loans
will persist, Bencsik said.

OTP, which has subsidiaries in nine countries in central
and eastern Europe, increasingly relies on them for profit
generation as Europe’s highest bank levy and Hungary’s slow
emergence from an economic slump erode domestic operations.
OTP’s Russian and Ukrainian units “suffered a significant
setback” in the second quarter, cutting foreign units’
contribution to group profit to 24 percent from 45 percent in
the first quarter, the bank said.

Cast Shadow

OTP’s results are “pleasing only at first glance,”
portfolio quality deterioration and the plunge in profitability
at the Russian subsidiary “cast a shadow on” the numbers,
analysts at KBC Securities, a unit of KBC Groep NV, said in an
e-mailed note today.

“Taking into account risks stemming from the Hungarian
foreign-currency mortgage plan, which is being laid out now, we
see little reason for a sustainable rise in OTP’s share price,”
KBC said.

The ratio of OTP’s non-performing loans rose to 20.8
percent by the end of June from 19.9 percent in the first
quarter, boosted by rising bad loans in Russia and Ukraine,
according to the statement. OTP’s second-quarter risk provisions
amounted to 59.8 billion forint while the coverage of bad loans
declined to 78.6 percent from 80.3 percent in the previous
quarter.

Bad Loans

Bad loans are set to ease in all markets except Russia and
risk costs will be lower this year than in 2012, Bencsik said.

OTP’s corporate tax payment dropped 34 percent from a year
earlier, helping boost profit, the bank said. Net interest
income rose an annual 2 percent in the period to 162.6 billion
forint while income from fees and commissions jumped 13 percent
to 42.8 billion forint.

Hungarian commercial lenders and the government are in
talks to devise a plan helping foreign-currency mortgage
borrowers whose installments soared after the forint weakened.

“We hope that negotiations will yield a solution that is
acceptable to all parties,” Bencsik said.

The government in 2011 forced domestic banks to take losses
on foreign-currency mortgages when it allowed borrowers to repay
these loans in bulk at below-market rates.